Digital Music’s Rise

Performance royalty distributions have grown during SoundExchange's watch.

(from Billboard Magazine, October 21, 2013) SoundExchange, the Washington-D.C. based non-for-profit that collects and distributes digital performance royalties from satellite and cable radio broadcasters, is one of the biggest signs of the decline of the record industry. The need for such a company as SoundExchange has risen exponentially as music changed to a more digital platform.

In 2003, the year iTunes launched in the United States, SoundExchange paid out only $3 million to rights owners and performers. By 2007, digital platforms had already greatly risen and the distributions rose to $36 million. The following year they had almost tripled to $100 million. SoundExchange expects distributions for 2013 to reach $500 million, just an 8% increase from last year.

SoundExchange collects digital performance royalties from companies such as Pandora, Sirius XM, and Music Choice. SoundExchange takes its administrative fee of 4.9%, pays 50% of the royalties to the owners of the sound recordings, and 45% is paid directly to the performing artist. Five percent of the royalties go to a fund for non-featured performing artists administered by the AFM and SAG-AFTRA.

The launch of Pandora in 2005 and the launch of its iPhone app in 2008 are two very important events when looking at the growth in annual distributions. The free iPhone app quickly became the top free app of the year.

SoundExchange is partly responsible for the growth in distributions because it presided over rate increases. SoundExchange President/CEO Michael Huppe uses the word “protect” when he talks about representing owners of sound recordings and performers and rate proceedings. He represented these groups in rate proceedings before the Copyright Royalty Board and in negotiations with digital services.

Huppe says, “There’s been a sea change in how people consume music. The shift to digital platforms has been one reason the numbers have gone up. People are streaming more than ever and are turning to platforms that pay performers.”